Airlines in China

Industry Profile

Reference Code: 0099-0756 Publication date: December 2009

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China - Airlines © Datamonitor (Published December 2009) Page 2 EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Market Value

The Chinese airlines industry grew by 20.7% in 2008 to reach a value of $29 billion.

Market Value Forecast

In 2013, the Chinese airlines industry is forecast to have a value of $54 billion, an increase of 86.2% since 2008.

Market Volume

The Chinese airlines industry grew by 19.6% in 2008 to reach a volume of 218 million passengers.

Market Volume Forecast

In 2013, the Chinese airlines industry is forecast to have a volume of 379.6 million passengers, an increase of 74.2% since 2008.

Market Segmentation I

Passengers transported within the domestic segment account for 95.4% of the total passenger volume.

Market Segmentation II

China generates 28.7% of the Asia-Pacific airlines industry value.

China - Airlines © Datamonitor (Published December 2009) Page 3 CONTENTS

TABLE OF CONTENTS

EXECUTIVE SUMMARY 3

CHAPTER 1 Market Overview 7

1.1 Market Definition 7

1.2 Research Highlights 7

1.3 Market Analysis 8

CHAPTER 2 Market Value 9

CHAPTER 3 Market Volume 10

CHAPTER 4 Market Segmentation I 11

CHAPTER 5 Market Segmentation II 12

CHAPTER 6 Competitive Landscape 13

CHAPTER 7 Leading Companies 17

7.1 China Southern Airlines Company Limited 17

7.2 Air China Limited 19

7.3 China Eastern Airlines Corporation Limited 22

CHAPTER 8 Market Forecasts 24

8.1 Market Value Forecast 24

8.2 Market Volume Forecast 25

CHAPTER 9 Macroeconomic Indicators 26

China - Airlines © Datamonitor (Published December 2009) Page 4 CONTENTS

CHAPTER 10 Appendix 28

10.1 Methodology 28

10.2 Industry Associations 29

10.3 Related Datamonitor Research 29

China - Airlines © Datamonitor (Published December 2009) Page 5 CONTENTS

LIST OF TABLES

Table 1: China Airlines Industry Value: $ billion, 2004-2008...... 9

Table 2: China Airlines Industry Volume: Passenger million, 2004-2008...... 10

Table 3: China Airlines Industry Segmentation I: % Share, by Volume, 2008...... 11

Table 4: China Airlines Industry Segmentation II: % Share, by Value, 2008...... 12

Table 5: Key Facts: China Southern Airlines Company Limited...... 17

Table 6: Key Financials: China Southern Airlines Company Limited ...... 18

Table 7: Key Facts: Air China Limited...... 19

Table 8: Key Financials: Air China Limited ...... 21

Table 9: Key Facts: China Eastern Airlines Corporation Limited...... 22

Table 10: Key Financials: China Eastern Airlines Corporation Limited ...... 23

Table 11: China Airlines Industry Value Forecast: $ billion, 2008-2013 ...... 24

Table 12: China Airlines Industry Volume Forecast: Passenger million, 2008-2013 ...... 25

Table 13: China Size of Population (million) , 2004-2008 ...... 26

Table 14: China GDP (Constant 2000 Prices, $ billion), 2004-2008 ...... 26

Table 15: China Inflation, 2004-2008...... 26

Table 16: China Exchange Rate, 2004-2008...... 27

China - Airlines © Datamonitor (Published December 2009) Page 6 MARKET OVERVIEW

CHAPTER 1 MARKET OVERVIEW

1.1 Market Definition

The airlines industry comprises passenger air transportation, both scheduled and chartered, but excludes air freight transport. Industry volumes are defined as the total number of passengers enplaned at all airports within the country or region. Industry value is defined as the total revenue obtained by airlines from transporting these passengers. This avoids the double-counting of passengers.

All currency conversions in this profile were carried out using constant average annual exchange rates.

For the purpose of this report Asia-Pacific is deemed to comprise of Australia, China, Japan, India, Singapore, South Korea and Taiwan.

1.2 Research Highlights

The Chinese airlines industry generated total revenues of $29 billion in 2008, representing a compound annual growth rate (CAGR) of 20.7% for the period spanning 2004-2008.

Industry volumes increased with a CAGR of 16.3% between 2004-2008, to reach a total of 218 million passengers in 2008.

The domestic segment proved the largest for the Chinese airlines industry in 2008, with a total of 207.9 million passengers, equivalent to 95.4% of the industry's overall volume.

China - Airlines © Datamonitor (Published December 2009) Page 7 MARKET OVERVIEW

1.3 Market Analysis

The Chinese airlines industry has been growing at a healthy rate over the past five years, slowing in 2009 but set to increase steadily into the forecast period.

The Chinese airlines industry generated total revenues of $29 billion in 2008, representing a compound annual growth rate (CAGR) of 20.7% for the period spanning 2004-2008. In comparison, the Japanese and Indian industries grew with CAGRs of 5.2% and 29.5% respectively, over the same period, to reach respective values of $29.7 billion and $9.7 billion in 2008.

Industry volumes increased with a CAGR of 16.3% between 2004-2008, to reach a total of 218 million passengers in 2008. The industry's volume is expected to rise to 379.6 million passengers by the end of 2013, representing a CAGR of 11.7% for the 2008-2013 period.

The domestic segment proved the largest for the Chinese airlines industry in 2008, with a total of 207.9 million passengers, equivalent to 95.4% of the industry's overall volume. In comparison, the international segment had 10 million passengers in 2008, equating to 4.6% of the industry's aggregate volumes.

The performance of the industry is forecast to decelerate, with an anticipated CAGR of 13.2% for the five-year period 2008-2013, which is expected to drive the industry to a value of $54 billion by the end of 2013. Comparatively, the Japanese and Indian industries will grow with CAGRs of 1.4% and 19.3% respectively, over the same period, to reach respective values of $31.8 billion and $23.4 billion in 2013.

China - Airlines © Datamonitor (Published December 2009) Page 8 MARKET VALUE

CHAPTER 2 MARKET VALUE

The Chinese airlines industry grew by 20.7% in 2008 to reach a value of $29 billion.

The compound annual growth rate of the industry in the period 2004-2008 was 20.7%.

Table 1: China Airlines Industry Value: $ billion, 2004-2008

RMB yuan Year $ billion billion % Growth

2004 13.7 95.2 2005 15.8 109.7 15.2% 2006 19.2 133.8 22.0% 2007 24.0 167.3 25.0% 2008 29.0 201.8 20.7%

CAGR, 2004-2008: 20.7%

Source: Datamonitor D A T A M O N I T O R

Figure 1: China Airlines Industry Value: $ billion, 2004-2008

$ billion % Growth

35 30.0%

30 25.0% 25 20.0% % Growth 20 15.0% 15 $ billion $ 10.0% 10 5 5.0% 0 0.0% 2004 2005 2006 2007 2008

Source: Datamonitor D A T A M O N I T O R

China - Airlines © Datamonitor (Published December 2009) Page 9 MARKET VOLUME

CHAPTER 3 MARKET VOLUME

The Chinese airlines industry grew by 19.6% in 2008 to reach a volume of 218 million passengers.

The compound annual growth rate of the industry volume in the period 2004-2008 was 16.3%.

Table 2: China Airlines Industry Volume: Passenger million, 2004-2008

Passenger Year million % Growth

2004 119.1 2005 137.2 15.2% 2006 157.3 14.6% 2007 182.2 15.8% 2008 218.0 19.6%

CAGR, 2004-2008: 16.3%

Source: Datamonitor D A T A M O N I T O R

Figure 2: China Airlines Industry Volume: Passenger million, 2004-2008

Passenger million % Growth

250 25.0%

200 20.0% % Growth illion 150 15.0%

100 10.0%

50 5.0% Passenger m

0 0.0% 2004 2005 2006 2007 2008

Source: Datamonitor D A T A M O N I T O R

China - Airlines © Datamonitor (Published December 2009) Page 10 MARKET SEGMENTATION I

CHAPTER 4 MARKET SEGMENTATION I

Passengers transported within the domestic segment account for 95.4% of the total passenger volume.

International segment accounts for a further 4.6% of the total passenger volume transported.

Table 3: China Airlines Industry Segmentation I: % Share, by Volume, 2008

Category % Share

Domestic 95.4% International 4.6%

Total 100.0%

Source: Datamonitor D A T A M O N I T O R

Figure 3: China Airlines Industry Segmentation I: % Share, by Volume, 2008

Inter national 4.6%

Domes tic 95.4%

Source: Datamonitor D A T A M O N I T O R

China - Airlines © Datamonitor (Published December 2009) Page 11 MARKET SEGMENTATION II

CHAPTER 5 MARKET SEGMENTATION II

China generates 28.7% of the Asia-Pacific airlines industry value.

Japan constitutes the largest airline industry in Asia-Pacific, accounting for 29.4% of the regional revenue.

Table 4: China Airlines Industry Segmentation II: % Share, by Value, 2008

Geography % Share

Japan 29.4% China 28.7% Rest of Asia-Pacific 25.6% India 9.6% South Korea 6.8%

Total 100.0%

Source: Datamonitor D A T A M O N I T O R

Figure 4: China Airlines Industry Segmentation II: % Share, by Value, 2008

South Korea 6.8% India 9.6% Japan 29.4%

Rest of Asia- Pacific 25.6%

China 28.7%

Source: Datamonitor D A T A M O N I T O R

China - Airlines © Datamonitor (Published December 2009) Page 12 COMPETITIVE LANDSCAPE

CHAPTER 6 COMPETITIVE LANDSCAPE

The airlines industry will be analyzed taking airline companies as players. The key buyers will be taken as leisure and business travellers, the latter considered as B2B, and fuel suppliers, aircraft manufacturers, and skilled employees as the key suppliers.

The global financial crisis and recession has impacted heavily on the airline industry. Mergers and acquisitions are becoming more prominent in order to save struggling companies. The threat of bankruptcy is strong in this industry with airlines such as Zoom, Silverjet, XL, Frontier, ATA, Oasis Hong Kong Airlines and SkyEurope, to name a few, going out of business or filing for bankruptcy protection in recent years. This can affect suppliers due to a lack of demand. Nevertheless, the Chinese airline industry is characterized by strong supplier power; a consequence of the Boeing and Airbus duopoly that exists in the manufacture of aircraft and the fact that, as yet, no viable substitute for jet fuel has been discovered. New entrants are still enticed to the industry, however the large capital outlay required can act as a deterrent. Rivalry between airlines is strong, as customer loyalty in this industry is low. This industry is price sensitive. Many consumers seek out cheap deals, leading to intense price competition between industry players. Alternative modes of transport, such as trains, can be expensive and slow substitutes for air travel, but it is possible that technologies such as videoconferencing may pose a threat to business air travel. Players can regain some power by differentiating their services, for example offering the transportation of freight which means that airlines are less reliant on passenger fares, while passenger loyalty schemes have the effect of generating switching costs for buyers.

The emergence of online booking sites means that the consumer can compare and contrast the services available to them. There are low inherent switching costs in this industry meaning that brand loyalty is low. In an attempt to increase their power further, industry players have introduced loyalty schemes to entice customers to their service and ensure loyalty, for example China Southern Airlines’ Sky Pearl Club.. As a customer who uses the services of a competitor loses the benefits of the loyalty scheme, the equivalent of a switching cost has been incurred. This industry is highly price sensitive, thus consumers will more often than not seek out the most cost effective way of travel. Tough economic conditions at present mean that businesses in many sectors are seeking cost reductions, and business travel may be one area where savings can be made; while, rising unemployment and lack of job security may lead to consumers avoiding expensive leisure flights. This price sensitivity serves to increase buyer power. However, the large number of customers acts to reduce buyer power, since airlines do not feel the impact of losing an individual customer. Overall, buyer power is assessed as moderate.

China - Airlines © Datamonitor (Published December 2009) Page 13 COMPETITIVE LANDSCAPE

Airlines require fuel, aircraft and labor. Staffing costs for an airline are substantial, with large numbers of flight and ground personnel, including mechanics, reservation and transportation ticket agents required for an efficient service. Airline fuel is not taxed in many countries, however rising fuel prices are difficult to counter. Airlines must enter into contracts when buying or leasing aircraft from suppliers.

Breaking these contracts can often imply a heavy financial cost. Furthermore, there is effectively a duopoly of suppliers of new airliners: Boeing and Airbus. This duopoly increases supplier power. In 2008, Boeing received 632 orders, while Airbus received 777 orders (net). Air China entered into a contract with Boeing for 34 737-700 planes in 2008. Commonly, airlines are forming alliances with one another, not only to achieve network size economies through code sharing, etc, but also to achieve scale economies in the purchase of fuel, and even of aircraft. Combining forces to make purchases serves to increase the industry players' bargaining power and therefore reduce supplier power. It is currently virtually impossible to find substitutes for the inputs required for airlines to operate – an airline must have aircraft, a supply of aviation fuel and a sufficient workforce before it can offer flights. Unlike other modes of transport, airlines have no alternative source of energy. Overall, supplier power is assessed as strong.

The airline industries in most countries globally have been deregulated to a certain extent meaning that entry barriers for new entrants are lower. Airlines are now free to negotiate their own operating arrangements with different airports, enter and exit routes easily, and set fares and flight volumes according to market conditions. This proves enticing for new entrants. However, the industry is still heavily controlled, meaning that there is a large amount of bureaucracy involved in setting up a new airline. In order to operate aircraft, new airlines must obtain an operating license which is usually a lengthy process, meaning that the generation of revenues can take longer, an dissuading factor for many prospective airlines. To enter into this industry, a company must have sufficient resources to pay the staff required to run an airline efficiently, and in order to either lease or buy a fleet of aircraft. There has been a growth in air traffic over recent years which mean that congestion at many airports is expected, especially the major hubs. The time slot given to an airline is important, and is something all airlines negotiate with airports. Established airlines will already hold the monopoly over slots at certain airports, making it harder for new airlines to infiltrate. This creates difficulties for a new airline aiming to negotiate prime slots at busy airports and can result in it being restricted to offering flights only at off-peak times, or having to fly to airports further away from popular destinations. This can be a deterrent to new airlines, as customers may seek more convenient alternatives. 2009 has so far proved a difficult year for airlines in many countries, as was 2008, with some airlines filing for bankruptcy. The danger of low profitability may dissuade new entrants: in the 2008 fiscal year, China Eastern Airlines and Air China reported net losses. Overall there is a moderate likelihood of new entrants to this industry.

China - Airlines © Datamonitor (Published December 2009) Page 14 COMPETITIVE LANDSCAPE

Other forms of transport such as road, rail and marine travel are considered as substitutes to airline travel. Buyers take into account not only the cost of travel but also how long the journey will take on corresponding forms of transportation. In larger countries, air travel makes it easier to overcome long distances and has certain benefits such as shorter travel time than rail travel, even including the time to check in. However in smaller countries, domestic air travel may not be so appropriate, and rail and road transportation become more attractive alternatives.

Furthermore, many consumers are now aware of the environmental impact of air travel, and are turning to rail travel instead. It is possible to travel around much of the world by long-distance bus or train, although levels of service vary and some border crossings may present a difficulty.

Air fares are usually cheaper than rail fares. Ferry travel is a popular alternative to air travel, linking the mainland to Okinawa and Hokkaido. Long distance buses are an alternative to rail transport and offer lower fares, however they are a great deal slower when compared to air and rail travel. Owing to Japan’s location and island status, there are few alternatives to flying when travelling internationally. There are some marine links to other Asian cities, including Shanghai, Tianjin, Busan, and Gaoxiong, but these are time-consuming and airlines may offer lower fares.

Videoconferencing is often suggested to pose a threat to business air travel, as it offers a lower-cost means of conducting meetings for colleagues based far apart, although at present it is not clear how completely such technologies will replace face- to-face meetings. The threat of substitutes for airlines is considered to be moderate.

The airline industry in China has some large incumbents such as Air China and China Southern Airlines holding significant industry share. The growth in recent years of budget airlines has intensified rivalry. Some airlines are able to differentiate themselves by offering exclusive services or a better quality service to their low-price competitors, and this can prove enticing to some consumers. However, particularly at present, buyers will be seeking lower-cost alternatives to legacy airlines. Recent years have proved difficult for some carriers, with mergers and acquisitions becoming more prominent. The increasing threat of bankruptcy means that some airlines have had to raise fares and add fees, which ultimately reduces customer satisfaction and loyalty.

China - Airlines © Datamonitor (Published December 2009) Page 15 COMPETITIVE LANDSCAPE

These difficulties can prove off-putting to new entrants, and therefore reduce rivalry as the numbers of leading companies dwindle. Exit barriers are high in this industry, as divestment of specialized assets would be required. High fixed costs, such as salaries and maintenance, increase rivalry. Furthermore, flying a plane with empty seats reduces the profitability of the flight: this is represented here as a high "storage cost" (because storage costs in a manufacturing industry represent unsold products). In order to reduce this, most leading competitors have diversified their business by carrying air freight for example. This reduces rivalry by making companies less reliant on passenger airline ticket sales. There is a strong degree of rivalry in this industry overall.

China - Airlines © Datamonitor (Published December 2009) Page 16 LEADING COMPANIES

CHAPTER 7 LEADING COMPANIES

7.1 China Southern Airlines Company Limited

Table 5: Key Facts: China Southern Airlines Company Limited

Address: 278 Ji Chang Road,Guangzhou 510405, CHN Telephone: 86 20 86 13 0870 Fax: 86 20 86 13 0873 Website: www.csair.com Financial Year-End: December Ticker: ZNH Stock Exchange: New York Stock

Source: Company Website D A T A M O N I T O R

China Southern Airlines Company Limited (CSAC) and its subsidiaries are engaged in the provision of domestic, Hong Kong, Macau, Taiwan, and international passenger, cargo and mail airline services. The company also offers aircraft maintenance and air catering. The company is the main air transportation business of China Southern Air Holding Company. Additionally, it has a property management business, Xinjiang Civil Aviation Property Management Limited. The company primarily operates in China, where it is headquartered in Guangzhou and employs 46,209 people.

The company has 13 branches including Xinjiang, Beifang, Beijing, Shenzhen, Hainan, Heilongjiang, Jilin, Dalian, Henan, Hubei, Hunan, Guangxi and Zhuhai Helicopter; and five major subsidiaries, including Xiamen Airlines, Shantou Airlines, Zhuhai Airlines, Guizhou Airlines and Chongqing Airlines. The company has set up bases in Shanghai and Xi’an and 18 domestic offices in cities including Chengdu, Hangzhou, and Nanjing. It also maintains 46 overseas offices including Tokyo, Paris, Los Angeles, Sydney, and Lagos. The company has equity interests in Sichuan Airlines Corporation Limited.

CSAC also owns and operates its own terminals: Terminal One at Beijing Capital International Airport, Terminal One at Xi’an Xianyang International Airport and Terminal Three at Urumqi Diwobao International Airport. The company offers numerous branded services such as: The Sky Pearl Club, First and Business Class VIP Lounges Ground Service, China Southern Connections Service, and ‘95539’ customer service and call center hot line.

China - Airlines © Datamonitor (Published December 2009) Page 17 LEADING COMPANIES

As of December 2008, the company had a fleet of 348 aircraft, consisting primarily of Boeing 737, 747, 757, and 777, Airbus 320, 300, and 330, and McDonnell Douglas 82 and 90 airliners. At the end of 2008, the average age of the company’s registered aircraft was 6.3 years.

Key Metrics

CSAC generated revenues of $7,941.1 million in the financial year ended December 2008, an increase of 1.6% compared to the previous year. The company’s net income totaled $687.4 million in fiscal 2008, an increase of 131.8% compared with 2007.

Table 6: Key Financials: China Southern Airlines Company Limited

Metric 2004 2005 2006 2007 2008 Revenues 3,443.4 5,500.1 6,638.5 7,813.7 7,941.1 Net Income -6.9 -265.1 29.3 296.6 687.4 Profit Margin -0.2% -4.8% 0.4% 3.8% 8.7% Total Assets 8,960.2 10,255.6 10,856.3 11,778.7 11,927.5 Total Liabilities 6,963.3 8,541.2 9,115.3 9,723.3 10,566.0 Employees 18,221 34,417 45,575 45,474 46,209

All in $ millions, except for employee numbers and margins

Source: Company Filings D A T A M O N I T O R

Figure 5: Revenues & Profitability: China Southern Airlines Company Limited

Revenues Net Income Profit Margin

9,000.0 10.0%

8,000.0 8.0% 7,000.0 6.0% 6,000.0 5,000.0 4.0% 4,000.0 2.0%

3,000.0 0.0% US$ Millions US$ 2,000.0 -2.0% (%) Margin Profit 1,000.0 0.0 -4.0% -1,000.0 2004 2005 2006 2007 2008 -6.0% Year

Source: Company Filings D A T A M O N I T O R

China - Airlines © Datamonitor (Published December 2009) Page 18 LEADING COMPANIES

7.2 Air China Limited

Table 7: Key Facts: Air China Limited

Address: 9/F Blue Sky Mansion, 28 Tianzhu Road, Zone A Tianzhu Airport Industrial Zone, Shunyi District, Beijing, CHN. Telephone: 86 10 6458 2211 Fax: 86 10 6458 0753 Website: www.airchina.com.cn Financial Year-End: December Ticker: 601111 Stock Exchange: Shanghai Stock Exchange

Source: Company Website D A T A M O N I T O R

Air China provides passenger and cargo air transport, and airline related services in China. The company also offers aircraft engineering services, such as aircraft maintenance, repair and overhaul, airport terminal services, and air catering, in mainland China, Hong Kong, and Macau. It serves about 81 domestic destinations and 42 international and regional destinations through its global route network with Beijing as the major hub. The company primarily operates in mainland China, Hong Kong and Macau, Europe, North America, Japan, Korea, Asia Pacific and others regions. It is headquartered in Beijing, China and employs about 20,490 people.

Air China is a member of the Star Alliance, an airline alliance with flights to 912 airports in 159 countries operating more than 18,100 daily flights.

The company primarily operates through four segments: airline operations, engineering services, airport terminal services, and others.

The airline operations of the company comprise the passenger and cargo services.

In the engineering services segment, the company provides aircraft engineering services, including aircraft maintenance, repair and overhaul services.

The airport terminal services segment consists of ground services, including check-in, boarding, premium class lounge, ramp, luggage handling, loading and unloading, cabin cleaning, and transit services.

Air China also offers ground service for 35 foreign airlines, and three domestic aviation groups and airlines at the Beijing Capital International Airport, which occupies 55% of ground service of the airport. Ground services include passengers’ entry, departure and transit, special passenger services, irregular flight passenger services, passenger luggage, tarmac load and unload, cabin cleaning, and supply of various special vehicles and ground equipment.

China - Airlines © Datamonitor (Published December 2009) Page 19 LEADING COMPANIES

The ‘others’ segment of the company includes air catering and other airline-related services.

Air China owns 224 Boeing and Airbus planes, and operates 243 routes covering 28 countries and districts, among which there are 69 international routes, six regional routes and 168 domestic routes. It provides more than 6,000 weekly flights and offers one million seats.

Air China has several branch companies such as Southwest, Zhejiang Province, Chongqing, Inner Mongolia, Tianjin, Guizhou Province, Tibet and bases in Shanghai and Southern China. It also owns a project technology branch, a business plane branch, Aircraft Maintenance & Engineering (Ameco Beijing), China International Freight Transport Airline and Beijing Air Food. Air China also holds shares of Shenzhen Airline and Cathay Pacific Airline. It is the biggest stockholder of Shangdong Aviation Group and also controlled Macao Airline.

China - Airlines © Datamonitor (Published December 2009) Page 20 LEADING COMPANIES

Key Metrics

Air China generated revenues of $7,599.3 million in the financial year ended December 2008, an increase of 3.6% compared to the previous year. The company reported a net loss of $1,345.4 million in fiscal 2008 compared to a net income of $565.3 million the previous year.

Table 8: Key Financials: Air China Limited

Metric 2004 2005 2006 2007 2008 Revenues 4,814.6 5,499.8 6,454.3 7,337.0 7,599.3 Net Income 366.1 354.8 474.7 565.3 -1,345.4 Profit Margin 7.6% 6.5% 7.4% 7.7% -17.7% Total Assets 9,578.7 9,796.0 12,059.8 13,113.6 14,420.8 Total Liabilities 6,989.2 6,700.6 7,501.6 8,696.6 11,482.6 All in $ millions, except for employee numbers and margins

Source: Company Filings D A T A M O N I T O R

Figure 6: Revenues & Profitability: Air China Limited

Revenues Net Income Profit Margin

9,000.0 10.0% 8,000.0 7,000.0 5.0% 6,000.0 5,000.0 0.0% 4,000.0 -5.0% 3,000.0 2,000.0

US$ Millions US$ -10.0%

1,000.0 (%) Margin Profit 0.0 -15.0% -1,000.0 2004 2005 2006 2007 2008 -2,000.0 -20.0% Year

Source: Company Filings D A T A M O N I T O R

7.3 China Eastern Airlines Corporation Limited

Table 9: Key Facts: China Eastern Airlines Corporation Limited

Address: 2550 Hongqiao Road, Shanghai 200335, CHN Telephone: 86 21 6268 6268 Fax: 86 21 6268 6116 Website: www.ce-air.com Financial Year-End: December Ticker: CEA Stock Exchange: New York Stock Exchange

Source: Company Website D A T A M O N I T O R

China Eastern Airlines (CEA) provides domestic, regional and international passenger and cargo airline services. The company offers passenger, cargo, and mail delivery and other extended transportation services. The company, through its subsidiaries, also offers ticket handling services, airport ground services, hotel reservation, travel agency and other related services. CEA operates approximately 6,090 scheduled flights per week, excluding charter flights, serving a route network that covers 134 cities within China and abroad. It is headquartered in Shanghai, China and employs about 44,153 people.

The company operates in two business segments: passenger, and cargo and mail.

The passenger business segment offers domestic, regional and international passenger airline services. The company offers from Shanghai’s Hongqiao Airport and Pudong International Airport. CEA also offers ticket handling, airport ground services, hotel reservation, travel agency, and other related services.

The company operates 4,857 domestic flights per week linking 332 domestic routes including Shanghai, Beijing, Guangzhou, Shenzhen, and others. It also operates approximately 838 international flights per week on 75 routes, serving 46 cities in 21 countries, primarily linking Shanghai to major cities in Asian and Southeast Asian countries such as Japan, Korea, India, Singapore, Thailand and Bangladesh, and certain strategic locations in Europe, the US and Australia.

The cargo and mail segment carries cargo and mail through freight aircraft as well as in available cargo space on the passenger aircraft. The segment carries cargo and mail through six MD-11F freight aircraft. It also carries cargo through the three Airbus A300F as well as two Boeing 747F freighters.

The company’s subsidiaries include: China Eastern Airlines Jiangsu, China Cargo Airlines, Shanghai Eastern Flight Training, Eastern Airlines Hotel, China Eastern Airlines Development (HK), and others.

Key Metrics

CEA generated revenues of $5,899.2 million in the financial year ended December 2008, a decrease of 3.4% compared to the previous year. The company reported a net loss of $2,193 million in fiscal 2008 compared to a net income of $38.6 million the previous year.

Table 10: Key Financials: China Eastern Airlines Corporation Limited

Metric 2004 2005 2006 2007 2008 Revenues 3,071.7 3,943.3 5,384.6 6,107.4 5,899.2 Net Income 46.1 -67.1 -475.9 38.6 -2,193.0 Profit Margin 1.5% -1.7% -8.8% 0.6% -37.2% Total Assets 7,682.4 8,459.8 8,785.4 9,777.9 10,492.6 Total Liabilities 6,961.0 7,466.1 8,286.0 9,343.0 12,308.0 Employees 20,817 29,301 38,392 42,556 44,153 All in $ millions, except for employee numbers and margins

Source: Company Filings D A T A M O N I T O R

Figure 7: Revenues & Profitability: China Eastern Airlines Corporation Limited

Revenues Net Income Profit Margin

7,000.0 5.0% 6,000.0 0.0% 5,000.0 -5.0% 4,000.0 -10.0% 3,000.0 -15.0% 2,000.0 -20.0% 1,000.0

US$ Millions US$ -25.0% 0.0 Profit Margin (%) Margin Profit -1,000.0 2004 2005 2006 2007 2008 -30.0% -2,000.0 -35.0% -3,000.0 -40.0% Year

Source: Company Filings D A T A M O N I T O R

CHAPTER 8 MARKET FORECASTS

8.1 Market Value Forecast

In 2013, the Chinese airlines industry is forecast to have a value of $54 billion, an increase of 86.2% since 2008.

The compound annual growth rate of the industry in the period 2008-2013 is predicted to be 13.2%.

Table 11: China Airlines Industry Value Forecast: $ billion, 2008-2013

RMB yuan Year $ billion billion % Growth

2008 29.0 201.8 20.7% 2009 31.6 220.2 9.1% 2010 35.3 246.1 11.8% 2011 40.1 278.9 13.3% 2012 46.3 322.1 15.5% 2013 54.0 375.9 16.7%

CAGR, 2008-2013: 13.2%

Source: Datamonitor D A T A M O N I T O R

Figure 8: China Airlines Industry Value Forecast: $ billion, 2008-2013

$ billion % Growth

60 25.0%

50 20.0%

40 % Growth 15.0% 30 10.0% $ billion $ 20

10 5.0%

0 0.0% 2008 2009 2010 2011 2012 2013

Source: Datamonitor D A T A M O N I T O R

8.2 Market Volume Forecast

In 2013, the Chinese airlines industry is forecast to have a volume of 379.6 million passengers, an increase of 74.2% since 2008.

The compound annual growth rate of the industry volume in the period 2008-2013 is predicted to be 11.7%.

Table 12: China Airlines Industry Volume Forecast: Passenger million, 2008-2013

Passenger Year million % Growth

2008 218.0 19.6% 2009 235.0 7.8% 2010 259.1 10.2% 2011 289.5 11.7% 2012 329.7 13.9% 2013 379.6 15.2%

CAGR, 2008-2013: 11.7%

Source: Datamonitor D A T A M O N I T O R

Figure 9: China Airlines Industry Volume Forecast: Passenger million, 2008-2013

Passenger million % Growth

400 25.0% 350 20.0% 300 % Growth illion 250 15.0% 200 150 10.0% 100 5.0% Passenger m 50 0 0.0% 2008 2009 2010 2011 2012 2013

Source: Datamonitor D A T A M O N I T O R

CHAPTER 9 MACROECONOMIC INDICATORS

Table 13: China Size of Population (million) , 2004-2008

Year Population (million) % Growth

2004 1298.8 2005 1306.3 0.60% 2006 1314.0 0.60% 2007 1321.9 0.60% 2008 1330.0 0.60%

Source: Datamonitor D A T A M O N I T O R

Table 14: China GDP (Constant 2000 Prices, $ billion), 2004-2008

Constant 2000 Year Prices, $ billion % Growth

2004 1713.7 2005 1889.6 10.30% 2006 2094.2 10.80% 2007 2333.0 11.40% 2008 2563.9 9.90%

Source: Datamonitor D A T A M O N I T O R

Table 15: China Inflation, 2004-2008

Year Inflation Rate (%) % Growth

2004 3.9 2005 1.8 -54.00% 2006 1.5 -16.30% 2007 4.8 219.50% 2008 6.4 33.70%

Source: Datamonitor D A T A M O N I T O R

Table 16: China Exchange Rate, 2004-2008

Exchange Rate Year ($/RMB yuan)

2004 0.12067 2005 0.1219 2006 0.12528 2007 0.13128 2008 0.14363

Source: Datamonitor D A T A M O N I T O R

CHAPTER 10 APPENDIX

10.1 Methodology

Datamonitor Industry Profiles draw on extensive primary and secondary research, all aggregated, analyzed, cross-checked and presented in a consistent and accessible style.

Review of in-house databases – Created using 250,000+ industry interviews and consumer surveys and supported by analysis from industry experts using highly complex modeling & forecasting tools, Datamonitor’s in-house databases provide the foundation for all related industry profiles

Preparatory research – We also maintain extensive in-house databases of news, analyst commentary, company profiles and macroeconomic & demographic information, which enable our researchers to build an accurate market overview

Definitions – Market definitions are standardized to allow comparison from country to country. The parameters of each definition are carefully reviewed at the start of the research process to ensure they match the requirements of both the market and our clients

Extensive secondary research activities ensure we are always fully up-to-date with the latest industry events and trends

Datamonitor aggregates and analyzes a number of secondary information sources, including:

- National/Governmental statistics - International data (official international sources) - National and International trade associations - Broker and analyst reports - Company Annual Reports - Business information libraries and databases

Modeling & forecasting tools – Datamonitor has developed powerful tools that allow quantitative and qualitative data to be combined with related macroeconomic and demographic drivers to create market models and forecasts, which can then be refined according to specific competitive, regulatory and demand-related factors

Continuous quality control ensures that our processes and profiles remain focused, accurate and up-to-date

10.2 Industry Associations

Civil Aviation Administration of China 155 Dongsi Xidajie, Beijing 100710, China 86 10 6409 1114 www.caac.gov.cn Association of Asia Pacific Airlines 9th Floor, Kompleks Antarabangsa, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Tel: 60 3 2145 5600 Fax: 60 3 2145 7500 www.aapairlines.org International Air Transport Association Travel Industry Designator Service, 800 Place Victoria, P.O. Box 113, Montreal, Quebec, H4Z 1M1, Canada Tel: 1 514 874 0202 Fax: 1 514 874 1753 www.iata.org

10.3 Related Datamonitor Research

Datamonitor Industry Profiles

Global Airlines Airlines in Asia-Pacific Airlines in Europe Airlines in Singapore Airlines in the United States Airlines in Singapore Airlines in South Korea Airlines in Russia Airlines in Hungary Airlines in Sweden Airlines in Taiwan

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